88% call on government to relax procurement rules to encourage investment

DLA Piper unveils blueprint for boosting UK infrastructure investment

Over politicisation of infrastructure projects in the UK is stymieing investment, according to research from DLA Piper.

Canvassing the views of 56 major UK infrastructure investors, the report –UK Infrastructure: Defining the Future – reveals the vast majority (84%) of investors* believe that there is too much politicisation around infrastructure decisions while more than half (55%) think that over-politicisation has a direct effect on the value of proposed projects. Indeed, seven out of ten (70%) have been deterred from investing due to political concerns.

While the report raises concerns over politicisation, UK infrastructure investors are broadly optimistic about the future, believing that net returns will increase over the next ten years and that Brexit may provide the opportunity to improve regulation.

Themes emerging from the DLA Piper research, include five main areas:

Grant statutory independence to the National Infrastructure Commission

The sense that decisions on major infrastructure projects are stuck in a political bottle-neck is evidenced by the fact that nine out of ten (91%) investors think that the National Infrastructure Commission should be granted statutory independence in order to expedite the process. A major frustration for investors is when projects are scrapped or significantly altered mid-project. To combat this and encourage greater private sector involvement, various solutions are preferred by investors. These include the requirement on the Government to identify and formally commit only to projects which have cross-party political support and for the Government to take on a greater level of completion risk.

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Colin Wilson, Partner, DLA Piper, commented: “There is a lot to be positive about in this report. Long term optimism around UK infrastructure investment is a vote of confidence in the UK economy and its prospects after Brexit. However, investors believe that infrastructure projects are getting bogged down by political wrangling in Westminster and there is a strong sense that major infrastructure projects are too often treated as a political football. It makes sense to grant statutory independence to the National Infrastructure Commission. This would both help to expedite projects as well as provide reassurance to investors that projects are less likely to be scrapped or substantially altered during the development cycle. It is clear also that were the government to assume greater completion risk it would act as a shot in the arm for investment, as it would help to de-risk portfolios and unlock further funds.”

Optimism abounds

Despite targeted criticisms, investors are largely positive about UK infrastructure investment opportunities over the medium to long term. Two thirds (66%) of investors think net returns from investment in UK infrastructure will increase over the next ten years, while 55% foresee more opportunities for infrastructure investment over the coming decade compared to the previous one. In addition, four out of five (84%) expect their infrastructure funds to invest either the same amount or an increase in capital deployment over the next five years. Investors are equally positive about the government’s National Infrastructure Delivery Plan, with 88% viewing it as a stable, long term approach. They are also largely supportive of its procurement process.

Opportunity to improve regulation post Brexit

Despite almost two thirds (64%) of investors being broadly positive about the UK’s current procurement process, a resounding majority (88%) believe that relaxing procurement rules would attract more investment into infrastructure projects. Over three quarters (77%) would also like to see the government ‘have a greater appetite’ for pursuing projects under the Private Finance 2 (PF2) scheme, a reformed version of the Private Finance Initiative (PFI).

Strong pull of the UK endures

The UK’s enduring cachet as an investment destination is evident when it comes to where investors are choosing to back infrastructure projects. The UK is the favoured destination for 84% of investors, followed by the US (66%) and Australia (59%).

Given the complexities around infrastructure projects, and the fact that the investors polled are based in the UK, the fact that their investments are heavily weighted towards domestic projects is also likely to be a factor.

Smart cities a clear driver of growth

‘Smart cities’ – cities which makes optimal use of interconnected information and communication technologies to enhance the quality and performance of urban services – were unanimously selected as having the greatest growth potential. Specifically, electric cars and autonomous vehicles were cited as having the biggest impact on UK infrastructure over the next five years. Investors believe that the rail and energy sectors require the most investment, with high-speed rail a priority for the former.

Colin Wilson adds: “Investors see enhanced connectivity as the future. Whether that’s in the field of expanding existing electric car infrastructure, autonomous vehicle incorporation or high-speed rail improvements, delivering faster, better, more efficient connections between cities and within cities is the direction of travel. How these projects are financed, and the procurement process is run is a source of debate amongst investors. There is a strong feeling that Brexit offers the chance for the government to relax procurement rules and that they should seize this opportunity with both hands. PFIs have come under significant scrutiny in recent times and investors are evidently not particularly supportive of them either. Rather, they prefer the PF2 scheme and want to see more projects pursued through this vehicle.”